Markets retain positive momentum

Markets ended positive during the week amidst volatility, with the Sensex and Nifty ending higher by 1.3% and 1.4%, respectively. BSE mid-cap and small-cap indices continued to outperform their large-cap counterparts, growing further by 2.3% and 1.7%, respectively, during the week. Factors such as food and fuel inflation tapering down to 10.4% (11.4%) and 12.6% (12.7%), respectively; marginal decline in WPI index to 9.97% (10%); healthy FII flows resulting in increased liquidity in the markets; and mixed cues from global markets weighed on investor sentiments during the week. On the sectoral front, all the sectoral indices ended in green, with the BSE FMCG index and BSE Bankex gaining the maximum by 2.9% and 2.7%, respectively.

BSE FMCG index outperforms Sensex
Overall, good 1QFY2011 results and the flavoir for defensives helped the BSE FMCG index gain 2.9%, outperforming the Sensex, which gained 1.3%. Gains in the FMCG index were largely driven by heavyweights ITC and HUL. While ITC increased 4.4% on improving fundamentals and robust outlook for cigarette volumes, HUL gained 1.2% after its management announced August 23 as the commencement date for the buyback of its shares. Amongst others, Godrej Consumer gained 6.8% on consolidation of its recent acquisitions and Marico moved up 8% aided by the news of its acquisition of Ingwe in South Africa. During the week, Asian Paints, Dabur and Nestle were up 2-4% owing to improving fundamentals and strong defensive buying. However, with most FMCG stocks trading at peak valuations, we are underweight on the sector.

Cairn India - Event Update: Cairn Energy Plc has entered into an agreement with Vedanta Resources Plc for sale of 40-51% stake in Cairn India. The all-cash deal is being executed at Rs405/share, wherein Rs355/share will be towards the sale and purchase agreement and the balance Rs50/share constituting the non-compete fee. Thus, the open offer to the minorities will be at the lower price of Rs355/share. We recommend Neutral on the stock.

Sesa Goa - Event Update: Vedanta Resources Plc, along with Sesa Goa, has entered into an agreement with Cairn Energy Plc to acquire a 51-60% stake in its Indian subsidiary, Cairn India. Vedanta, along with Sesa Goa, will make the 20% mandatory open offer to other shareholders of Cairn India at Rs355 per share; Sesa Goa will make a strategic investment of 20% in Cairn India. We maintain our Neutral view on the stock.

Gujarat Pipavav Port - IPO Note: Gujarat Pipavav Port (GPPL) is coming out with IPO for Rs500cr through fresh issue of 10.4-11.9cr shares in the price band of Rs42-48/share. GPPL also expects to retire high-cost debt utilizing Rs300cr from the issue proceeds resulting in reduction in interest expenses from Rs115cr in CY2009 to Rs92cr in CY2011E. Consequently, we expect GPPL to report profit from CY2011E onwards. Hence, we recommend Subscribe to the IPO at the lower price band with a long-term perspective.